Around 2012, George Osborne brought in a number of changes to the taxation of, generally, non-UK property investors. These measures were very successful in raising revenue. It’s my view that this is where the Government had the realisation that taxing bricks and mortar was an effective way of generating tax revenues.
As such, the Government has embarked on a prolonged attack on buy to let property landlords in particular. Increasing tax rates and reducing reliefs for landlords, and generally plundering as much tax as possible.
It is therefore important that landlord’s keep on top of the structure of their portfolios from a tax perspective and take advice on the acquisition of new properties.
In terms of Stamp Duty Land Tax there have been various reforms starting in 2012. However, the most painful has arguably been the introduction of the 3% rate for the acquisition of so-called ‘additional’ properties in April 2016.
This is fairly and squarely aimed at buy to let investors and those with holiday homes. This is a significant additional transaction cost.
Speaking of painful changes, the rules surrounding the restriction of interest relief are now in to their second year. This is often referred to as ‘Clause 24’. The effect of the rules is to disallow the deduction of finance costs, including interest, from the tax computation.
This creates phantom taxable profits – and will dramatically change the economics for portfolios which are highly geared.
The changes are being phased and we are now in to the second tax year of this phased introduction.
The rules only apply to residential property investors so not commercial property investors. In addition, companies are exempt from these restrictions.
Recently, the headline rates for Capital gains tax were reduced to 10% and 20% respectively for basic rate and higher rate taxpayers.
However, these savings were denied to residential property investors who remain subject to 18% and 28%. It is difficult to see why a buy to let landlord should pay a higher rate of tax on gains than someone who hangs a painting on a wall. Other than more Government plundering of bricks and mortar.
It should be said that here are a number of structuring opportunities for property investors and perhaps now, more than ever, significant benefits can be derived from the correct structure.
Over recent weeks, months and years we have advised incorporation of property portfolios, hybrid partnerships and using international pension schemes to hold properties to name but three.
However, despite what some property commentators in the market may suggest there is no silver bullet. No one size fits all solution.
The key is that each property investor will have his own individual circumstances and his own objectives. It is important that any tax planning puts those first and foremost.
If you have any queries about your tax position as a landlord then please get in touch.